In investment terms, the Dutch market boasts, in the words of one analyst ‘lean mean’ companies that can compete internationally, but the prospect is for steady growth rather than anything spectacular. The bond market is also less interesting as the yield curve is almost fully converged with Germany.
Chris Garsten director of European equities with Credit Suisse Asset Management in London says: “Over the last few years the market has been significantly re-rated. There used to be an unjustified and significant discount to the rest of Europe.
“There are a number of positives: shareholder friendly management, very few cyclical companies affected by Asia, the strong dollar, and many companies with high margins.
“It is difficult to find companies that are at a rating discount to their European peers, but we don’t feel a huge downside because a lot of the companies are ex-tremely well managed.”
Marco van Rijn, manager of Dutch equities with ING In-vestment Management in the Hague says: “Recent performance has already discount-ed part of 1998’s up-side but I think there is 5-8% to go and earnings estimates have come down because of Asia.”
He believes that earnings growth may slow as restructuring become less important with restructuring in Philips and Unilever having been completed. “We expect multiples to contract short term. Longer term we are still positive as the Dutch market has several players which are lean and mean in an international context.”
Garsten says that there could be significant share buybacks. “Some of the re-search we have just had in shows that the top 45 companies excluding financials have about a 45% gearing compared to 60% for the US. The really big companies - Royal Dutch, Unilever, Philips, the Dutch publishers - are cash rich. I think that will underpin the market, but it is difficult to see it being re-rated.”
Van Rijn believes that Asian has declined as a risk but could still pose problems. “There could be problems, though not just for the Dutch market in Indonesia or if there were problems with the HK$/US$ peg.”
But there are still uncertainties from Asia he says. “For Philips, for example, you could see some price erosion but that will take a few months to feed through the pipeline.”
On risks, Garsten says that a negative would be if the dollar weakened adding that Asia isn’t really a major issue. “Companies tend to be de-fensive in nature.”
On sectors, he says: “Historically we have overweighted the financials and still do. Also the retail sector, because the domestic economy is booming.” He adds that in the Dutch fund, the mid caps are favoured because of their relatively low rating while on a Europe-wide basis they favour Royal Dutch.
On the bond market, Jon-athan Cunliffe, senior investment manager at Lombard Odier in London, says that convergence has now been fully factored in terms of the interest rates and the yield curve. “It is fully valued against Germany,” he says.
“It is not of the same interest for a lot of investors as it was before. It is fine where it currently is, but expectations have converged to Germany’s pretty much throughout the curve. There are marginal things such as supply and demand in the market but they have a minor impact.”
Fay Watson associate director with Credit Suisse Asset Management who runs the guilder bond fund and the guilder money market fund says that they are “fairly constructive on the core European bond market generally although at such low yield levels a bit of caution is required.” The current forecast on a three month basis for Germany is 4.95 with best case 4.75. “It looks like we are on the way to a best case.”
She is positive about the slowing effect coming from Asia and continuing figures on growth with low inflation and low unemployment from the US. “I like the long end of the Dutch bond market particularly. Two areas stand out as different from Germany: that the Dutch economy is growing faster with inflation substantially ahead of the German rate with a big difference in the unemployment rate. John Lappin